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Outflows for gold ETPs despite high equity market volatility

By: Risk | 13 Jun 2012

During May 2012 the price of gold dropped over 6% and investors withdrew over €1 billion from gold ETPs.

Gold exchange-traded products (ETPs) have seen large outflows in both the US and Europe – an unusual occurrence in an environment of increased equity market volatility.

The price of gold declined by 6.1% over the month, fuelling redemptions in ETP holdings, according to a Deutsche Bank monthly market report. European domiciled gold ETPs experienced outflows of €571 million, and it was similar in the US with about €537 million, as outlined in the report.

While gold ETP flows and prices have typically picked up in times of greater volatility, the opposite was the case for May. This is likely to be due to different economic factors, according to Christos Costandinides, London-based European head of ETF Research & Strategy at Deutsche Bank.

“At the time, gold was clearly used as a safe haven and the price of gold was rising,” says Costandinides. “Again, we have experienced uncertainty in the markets but the difference is that the price of gold was declining.”

He suggests another round of quantitative easing seems increasingly unlikely. Inflation expectations have been affected, which seems to have influenced gold investor behaviour and price.

But, despite outflows, he adds that it does not signify a meltdown of the position of gold in the industry.

Total inflows over the past 12 months into exchange-traded gold products have been close to €6.3 billion, according to Nizam Hamid, head of ETF Strategy at Lyxor in London. The last time gold had outflows in Europe was in May 2011, adds Hamid.

Commodity ETPs saw net outflows of $1.2 billion in May 2012 across Europe and $900 million across the US, according to ETF Global Insight. In Europe, it was precious metals that experienced the largest net outflows with $801 million during the month. However, in both Europe and the US year to date, precious metals gathered the largest net new inflows of all commodities at $3.4 billion globally.